For small businesses struggling with debt, some relief may be on way
Subscribe to enjoy similar stories. NEW DELHI : Hope is around the corner for millions of small businesses struggling with debt, with the Union budget likely to propose longer repayment timelines, penalty waivers and a digital platform to ease loan restructuring. The union ministries of finance and MSME are updating the decade-old framework for revival and restructuring (FRR) for micro, small, and medium enterprises (MSMEs), two people aware of the plan said.
The new framework, called FRR 2.0, is aimed at supporting MSMEs by easing their access to finance, the people said on condition of anonymity. When a loan repayment misses due date, the bank marks it as a special mention account (SMA-0). Once the delay crosses 30 days and 60 days, it is tagged SMA-1 and SMA-2.
If the repayment is delayed beyond 90 days, it is classified as a non-performing asset. Once the loan is tagged as SMA, the borrower finds it virtually impossible to raise fresh loans. The new framework may propose doubling the repayment period to 180 days before a loan is labelled NPA, the people said, expanding breathing room for small businesses.
According to one of the two people cited above, the aim is to reduce the number of "avoidable closures" triggered by heavy debt burden. In case of delay in loan repayment, the interest rate increases to the level of 'penal rate', which varies from case to case, compared to the initial interest rate agreed upon. The new framework is expected to relax the penalty rules as well.
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